Luton Homes is a leading builder of luxury houses. Three years ago, Luton expanded its business by acquiring Clarity Homes, which gave Luton a signicant
Luton Homes is a leading builder of luxury houses. Three years ago, Luton expanded its business by acquiring Clarity Homes, which gave Luton a signicant presence In the project home market. Clarity is managed as an investment centre. and ROI is used to assess Clarity's performance (with the average of beginning and end-of- year investment balances being used in the ROI calculation). Bonuses for Clarity's managers are atso based in part on ROI. Investments made by Luton Homes and its Clarity division are expected to earn a minimum return of 15 per cent before Income taxes. Ciarity's ROI has ranged from 19.3 to 22.1 per cent since it was acquired. Last year, Clarity considered an investment opportunity with an estimated ROI of 18 per cent. Clarity's management decided against the investment because they believed it would decrease their overall ROI. Last year's prot statement for Clarity is provided below. The division's productive assets were $37 800 000 at year end, a 5 per cent increase over the prior year-end balance. Clarity Homes division Profit statement for the year ended 31 December (In S'OOOs) Sales revenue $72 000 Cost of goods sold 47 400 Gross margin $24 600 Operating costs: Administrative $ 6 420 Selling 10 800 17 220 Prot from operations before income taxes 33 7 380
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